If A Company Fails To Adjust For Accrued Revenues

If a company fails to record or adjust Accrued Revenues, then due to non recording of revenues account in Income Statement, the net income or net profit decreased or understated. On the hand, the value of assets in balance sheet is also understated.

Actually, as we did not record the following adjusting entry of accrued revenues as shown below:

 

                                         Accrued Revenues a/c  XXX

 

                                                                             Revenues a/c  XXX

                                                     (Revenues Accrued but not recorded)

As, accrued revenues is increasing so we debit it as a current asset but as it is not recorded, so the value of total assets on balance sheet decreases. Similarly, as we did not record revenues account, so it decreases the revenues value in Income Statement for the period which increases the net income.

The shareholder’s equity account also understates as revenues are not added to it due to non recording of adjusting entry.